Economy and Society

Pensions for AllJomo Kwame Sundaram and Rob Vos

October 4, 2016

October 1st is the International Day of Older Persons. Just another day? Perhaps, but it should remind us that the world’s population is ageing, brought about by the combined effects of declining mortality and fertility rates and longer longevity. By mid-century, one out of five people will be over 65 compared to over one in ten now.
This is dramatic enough. What is equally compelling is that eighty per cent of older persons in the world will be living in developing countries by then – within two generations.

This ageing of the world’s population is one of humanity’s major achievements. Yet, significant challenges are keeping in step with this historic and emerging trend. For example, can health systems adapt to growing and new demands for care? What about the sustainability of social protection schemes? How do we keep our pension systems viable? These are serious, but solvable challenges.
The challenges are greatest, of course, in developing countries, where the vast majority of older persons lack adequate income protection. In the absence of pension incomes or other social transfers for older persons, the risk of spending one’s older years in poverty rises sharply. Moreover, in most developing countries, poverty compels older persons to continue working as long as they are able to. But reduced capacities, limited job opportunities, low incomes and other factors often combine to reduce their earnings.

The situation is particularly acute in rural areas, and, in many contexts, affects older women more than older men. In some parts of the world, notably in Sub-Saharan Africa, the problem is compounded by added responsibilities for the care of grandchildren, e.g. due to migration, disease, disability or death.

Many older persons who take on these added responsibilities are already deprived of support from their adult children that they had expected for their old age. Their own resources are often already seriously depleted when they are called upon to support their grandchildren. While additional transfers from social networks and family members, particularly children, can provide additional security for older people, these are often unstable income sources.

Social attitudes to caring for older persons are also changing, even in developing countries. As families get smaller, their ability to meet the financial and care demands of ageing members is affected at a time when, paradoxically, family support assumes greater importance as assets decline and options narrow in old age. Formal pension systems will thus need to expand as families are unable or unwilling to provide income security.

In recent decades, pension reforms in developing countries have focused on private ownership or management, ostensibly to make the systems more financially viable. In fact, many such reforms have had mixed, if not dubious results.

All this has done little for those without access to any formal pension scheme. At face value, a universal pension system in poor countries may seem utopian. However, there is a growing consensus that pensions for all are, in fact affordable, even for the poorest nations.

Some developing countries have managed to introduce social pensions that provide minimal income security to all persons in old age. These schemes are typically tax-financed rather than based on contributions made while employed.

Thanks to these schemes, everybody who has reached a certain age can get a pension, or benefits are given to all who can show they have no other means to survive. In Bolivia, Botswana and Mauritius, for example, such pensions are granted to all who have reached 65 years of age. In Argentina, Namibia and South Africa, social pension benefits are targeted at the poor.

Is it reasonable to use general taxpayers’ money for such purposes? Such provisions keep older persons out of poverty, and thereby facilitate their fuller participation in society. Such social pension schemes significantly contribute to poverty reduction.

In Brazil, only 3.5 per cent of older persons receiving a social pension remain poor, unlike 51 per cent of those who do not. Similarly, the universal pension scheme in Mauritius has reduced poverty among older persons by more than 40 per cent.

Moreover, such pension benefits are often shared with household and family members. For example, in Namibia, more than 70 per cent of pension income is shared among household members and spent on food and education for grandchildren.

In Bolivia, higher caloric consumption, as well as lower school drop-out rates, were recently observed in rural households benefiting from the universal pension benefit. In Brazil, the rural pension has been linked to higher expenditure on seeds and tools to support agricultural production as well as improve household access to credit.

But can poor countries afford to provide all older persons with a minimum income? According to a United Nations study, in two-thirds of developing countries, the cost of a pension benefit of that amount would cost their societies less than one per cent of national income. And, even a benefit of double the global poverty line is quite manageable, even in 2050, when the numbers of older persons will have become much larger.

It may be less affordable, though, for some of the poorest countries, which have far fewer fiscal resources and face many competing demands. In such cases, there could also be a role for the donor community, which may already be supporting education and health budgets, to also contribute by providing adequate budget support to support broader development efforts, including improved coverage of social services and social protection.

With international solidarity, a pension for all is affordable. Therefore, priorities should be set to ensure that ageing is an achievement that can be cherished by all humanity.

(This article was originally published in Inter Press service (IPS) news on October 1, 2016)